How Morgan Stanley Is Compensated By You
Depending on the types of relationships you establish and the ways you choose to do business with us, Morgan Stanley may be compensated for the services we provide through transaction commissions and markups, asset-based fees and other fees and charges.
Morgan Stanley Wealth Management Schedule of Miscellaneous Account and Service Fees
Your Morgan Stanley relationship enables you to select from a variety of account types, to help meet both everyday needs and long-term objectives. To understand the account and service fees1 that may be applied to your account(s) please visit account and service fees. Fees may vary by account type or other factors, and are subject to change. Some fees may be waived at certain asset levels or for various programs and accounts, such as, but not limited to, Reserved,2 and CashPlus Brokerage Accounts. Fees listed exclude advisory fees, commissions, commission equivalents or markups. Please speak with a member of your Morgan Stanley team if you have any questions regarding our account or service fees.
Brokerage
For brokerage activity, we offer transaction-based pricing in which you pay commissions, sales loads, markups/markdowns or other fees for each transaction you and your Financial Advisor execute. You can conduct transaction-based business in virtually all financial products and services within an Active Assets Account or in retirement, education savings, or other accounts we offer.
Choice Select
If you are a moderate or active trader, you should consider enrolling in Choice Select — a pricing alternative for brokerage accounts. Choice Select pricing is an alternative way to pay commissions on a per-trade basis for eligible equities and options transactions in a brokerage account. With a sliding scale commission schedule, the more you trade, the lower your marginal commission rate. The schedule is based on the principal volume of eligible trades executed annually, and commissions are charged monthly in arrears. Choice Select is a brokerage service not an investment advisory offering. Any investment advice provided by Morgan Stanley is solely incidental to the brokerage services we provide. You do not pay for, nor do you receive, any investment advisory services or a level of advice different from that provided to other full-service brokerage clients who pay on a per-trade basis.
Investment Advisory
In our investment advisory programs, you generally pay an asset-based fee, charged monthly in advance, based on the total value of the assets in your account at the end of the previous month. Unless otherwise noted, the asset-based fee generally covers our investment advisory services, trade execution, custody of securities at Morgan Stanley, reporting, and compensation to your Financial Advisor. Depending upon the investment advisory program you select, you may also be charged a professional money manager’s fee as well as additional fees for overlay services and platform maintenance.Our services and responsibilities, as well as the applicable fees charged to your account, are described in the investment advisory agreement we enter with you as well as the Form ADV Brochure applicable to the program you have selected.
You may select from our comprehensive suite of managed account programs, which are designed for various levels of investment experience and sophistication, with asset minimums that start as low as $5,000. Depending upon the program, your investment advisory account may include stocks, bonds, money market funds, mutual funds, exchange-traded funds and cash. You can establish investment advisory relationships for your retirement or trust accounts in addition to your personal investment accounts. If you select one of our Non-Discretionary advisory programs, your Financial Advisor will provide investment advice, but you will retain decision-making authority over your account.
Morgan Stanley offers financial planning services through LifeView® Advisor and LifeView® Personal Wealth Advisor. Using these tools, your Financial Advisor can assist you with the evaluation of your financial goals and help you develop an investment strategy to meet goals such as planning for retirement, funding an education and insurance planning. FAs have the option to charge a minimum of $250 and up to a maximum of $5,000 per client. FAs who hold one of the following professional designations: Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Personal Wealth Advisor (CPWA), Chartered Financial Consultant (ChFC), Certified Trust and Financial Advisor (CTFA) or Family Wealth Director (FWD), may charge up to a maximum of $10,000 if assets in a LifeView Plan a re over $5MM.
Lending Services
Morgan Stanley offers a variety of lending products to individuals and businesses. We are compensated for these services in two ways: through fees when the loan or credit line is initially established and/or through ongoing interest charges. These fees and payments depend on the type, structure and duration of the advance.
For margin and Express CreditLine (ECL) loans, you are not charged upfront fees. Normally, ongoing interest charges are calculated and paid based on a variable interest rate. Principal is usually repaid at your discretion, although we may exercise our rights under our agreement with you at any time if there is a collateral shortfall.
For a Liquidity Access Line, clients are typically not charged upfront fees to set up the line of credit.4Various loan structures can be established in one loan account, including a variable rate revolving line of credit and fixed rate advance. Fixed rate advances may carry prepayment penalties. The ongoing principal and interest payments depend on the type, structure and duration of the loan. Principal is usually repaid at the client’s discretion, although Morgan Stanley Private Bank, National Association may exercise its rights under its agreement with you at any time, including if there is a collateral shortfall. You can also establish a standby letter of credit. Fees on standby letters of credit are based on the issuance amount of the Letter of Credit. Fees, interest and principal payments are paid to Morgan Stanley Private Bank, National Association. The proceeds from a Liquidity Access Line loan/line of credit (including draws and other advances) may not be used to purchase, trade, or carry margin stock; repay margin debt that was used to purchase, trade or carry margin stock; and cannot be deposited into a Morgan Stanley Smith Barney LLC or other brokerage account. Liquidity Access Line is a securities-based loan/line of credit product offered by Morgan Stanley Private Bank, National Association, an affiliate of Morgan Stanley Smith Barney LLC.
For a Portfolio Loan Account, clients are typically not charged upfront fees to set up the credit facility.5Various loan structures can be established in one loan account, including a variable rate revolving line of credit and fixed rate loan. Fixed rate loans may carry prepayment penalties. The ongoing principal and interest payments depend on the type, structure and duration of the loan. Principal is usually repaid at the client’s discretion, although Morgan Stanley Bank, N.A. may exercise its rights under its agreement with you at any time, including if there is a collateral shortfall. You can also establish a standby letter of credit. Fees on standby letters of credit are based on the issuance amount of the Letter of Credit. Fees, interest and principal payments are paid to Morgan Stanley Bank, N.A. The proceeds from a Portfolio Loan Account loan/line of credit (including draws and other advances) may not be used to purchase, trade, or carry margin stock; repay margin debt that was used to purchase, trade or carry margin stock; and cannot be deposited into a Morgan Stanley Smith Barney LLC or other brokerage account. Portfolio Loan Account is a securities based loan/line of credit product offered by Morgan Stanley Bank, N.A., an affiliate of Morgan Stanley Smith Barney LLC. Morgan Stanley Private Bank, National Association, an affiliate of Morgan Stanley, offers a variety of Tailored Lending loan solutions; some may require upfront fees in addition to interest payments based on the type, structure and duration of the loan. Principal is usually repaid at your discretion, although Morgan Stanley Private Bank, National Association may exercise its rights under its agreement with you at any time if there is a collateral shortfall. The proceeds from a Tailored Lending loan/line of credit (including draws and other advances) may not be used to purchase, trade, or carry margin stock; repay margin debt that was used to purchase, trade or carry margin stock; and cannot be deposited into a Morgan Stanley Smith Barney LLC or other brokerage account.
Residential mortgage loans are made by Morgan Stanley Private Bank, National Association, an Equal Housing Lender, an affiliate of Morgan Stanley Smith Barney LLC. Some loans may involve an origination fee, which is typically up to one percent of the principal amount of the loan, and/or an application fee and closing costs. The proceeds from a residential mortgage loan (including draws and advances from a home equity line of credit) are not permitted to be used to purchase, trade or carry eligible margin stock; repay margin debt that was used to purchase, trade or carry margin stock; or to make payments on any amounts owed under the note, loan agreement, or loan security agreement; and cannot be deposited into a Morgan Stanley Smith Barney LLC or other brokerage account.
Other Compensation
Morgan Stanley and its affiliates may earn compensation in other, more indirect ways with regard to certain of the products you purchase or services you receive. For example, Morgan Stanley may earn compensation in connection with the provision of investment banking, prime brokerage, institutional brokerage or placement agent services, as well as stock loan or other lending, money-management or trading-desk activities. Certain investment vehicles may include securities of Morgan Stanley’s parent or other affiliates and companies in which Morgan Stanley or its affiliates make a market or the officers or employees of Morgan Stanley or Morgan Stanley’s affiliates own securities.
How Morgan Stanley Compensates Your Financial Advisor
With the exception of compensation in connection with residential mortgage loans, your Financial Advisor’s compensation is based primarily on the fees and commissions that you pay us. Different products have different compensation structures and, accordingly, our Financial Advisors get paid more or less depending on the product or service you choose. In general, the percentage of Morgan Stanley’s fees and commissions we pay to our Financial Advisors in incentive compensation depends upon the type of account or pricing structure you have established with us, as well as the particular product you purchase. The more overall gross revenue a Financial Advisor generates, the higher his or her credit rate.
On certain lending products like Margin, Liquidity Access Line, Portfolio Loan Account and Express CreditLine, Financial Advisors are credited with up to 65 basis points of the balance of the loan depending on the product and level of discount with the individual loan. For Tailored Lending, Financial Advisors are credited up to 15% of the spread of the balance of the loan depending on the level of discount with the individual loan. Morgan Stanley also has partnerships with third party lenders. Your Financial Advisor may receive a fee for placing certain non-mortgage loans with third-party lenders. The fees vary according to the specific third-party program. Financial Advisors may also receive ongoing compensation (called residuals) on some investment products.
The Incentive Compensation Credit Rate varies and is subject to change. The Incentive Compensation Credit Rate ranges from 20% to 55.5%, with a portion of Total Credits awarded to the Financial Advisor as Deferred Compensation, and the remainder of the Total Credits awarded as Cash Compensation.
In addition to the Credit Rate Schedule outlined above, your Financial Advisor may be eligible for bonuses, based on the total Gross Revenue he or she generates during the year, his or her Length of Experience in the wealth management industry, his or her clients’ Margin, Liquidity Access Line/Portfolio Loan Account/Express CreditLine and Tailored Lending balances, Mortgages closed, and the number of new Lending units opened during the year. Your Financial Advisor may be eligible to receive financial incentives in connection with the transition of his or her employment to Morgan Stanley. Such incentives may include sign-on bonuses and/or loan-bonus arrangements, equity awards, buy out of forfeited Deferred Compensation or retention arrangements, special commission arrangements, supplemental bonuses or loan-bonus arrangements, and may be contingent upon your Financial Advisor satisfying certain performance-based criteria which may depend on total client assets serviced by the Financial Advisor at Morgan Stanley and/or the revenue they generate.
Your Financial Advisor will receive reduced or no Incentive Compensation for transactions below certain commission levels, as well as for households that do not meet certain asset minimums.
Float
Morgan Stanley may retain, as compensation for its provision of services, your Account’s proportionate share of any interest earned on aggregate cash balances held by Morgan Stanley or an affiliate with respect to assets awaiting investment. Such interest retained by the Custodian shall generally be at the prevailing Federal Funds interest rate.
1 Some of the fees described are charged by Morgan StanleySmith Barney LLC (“Morgan Stanley”), while others are charged by third parties. Fees are subject to change. Morgan Stanley reserves the right, in its sole discretion, to discount or waive any fees. If you have any questions regarding these fees, please contact a member of your Morgan Stanley team or call the number on your account statement.
2 To qualify for Reserved, a client’s household must have and maintain a minimum of $1,000,000 in eligible assets and liabilities or paid at least $10,000 in managed fees/commissions. Annual managed fees/commissions paid is generally defined as revenue generated in fee-based accounts and commissions generated in non-fee based accounts, and is calculated on a rolling 12-month basis. Not all revenue is included; Morgan Stanley reserves the right to exclude certain items of revenue in its sole discretion. There is no cost to be enrolled in Reserved. Morgan Stanley Smith Barney LLC reserves the right to change or terminate the Reserved program at any time and without notice. Reserved program participants’ accounts and activity are reviewed periodically to confirm that they continue to qualify for Reserved.
3Options are not appropriate for all investors.
4 Clients may be responsible for fees of a 3rd party law firm engaged by MSPBNA to review complex LAL transactions (e.g. review of trust agreements). Clients will also be charged a fee for the prepayment of principal on fixed rate advances and upon a client’s request for certain cash management services (e.g. duplicate statements and check re-orders.)
5 In connection with certain Portfolio Loan Account credit facilities, clients may be required to pay legal or documentation fees to third parties.
